The results for the first half of '24 exceeded expectations. Revenue and net profit to mother increased by 25.6% year-on-year, and Weixing Co., Ltd. released its 2024 mid-year report by 37.8%. The company's performance for the first half of 2024 exceeded expectations, achieving operating income of 2.3 billion yuan, a year-on-year increase of 25.6%, net profit of 0.42 billion yuan, a year-on-year increase of 37.8%, after deducting non-net profit of 0.4 billion yuan, a year-on-year increase of 33.7%, EPS of 0.35 yuan, and a cash dividend of 0.2 yuan (tax included) per share.

The profit side grew faster than revenue in the first half of the year, mainly due to increased gross margin, lower expenses, and other revenue increases. Net profit margin increased 1.6 PCT to 18.1% year over year. On a quarterly basis, 24Q1/Q2's revenue in a single quarter was +14.8%/+32.2%, respectively, net profit to mother was +45.3%/+36.2% year-on-year, respectively, and net interest rates to mother were +2.0/+0.7PCT, respectively.

Revenue from all categories achieved rapid year-on-year growth in the first half of '24, with domestic and foreign revenue increasing by 24.8%/27.2% by category: buttons/zippers/other apparel accessories/other business revenue each accounted for 40.4%/54.8%/3.3%/1.5% of total revenue, with revenue +27.1%/+24.0%/+23.2%/+52.2%, respectively.

By region, domestic/international business revenue each accounted for 66.9%/33.1% of total revenue in the first half of '24, with revenue +24.8%/+27.2%, respectively.

In terms of capacity utilization: The company's capacity utilization rate in the first half of '24 was 70.7%, an increase of 13.6 PCT over the previous year. The share of domestic and foreign production capacity was 82.1%/17.9% (Bangladesh and Vietnam abroad), and the domestic and foreign capacity utilization rates were 75.5%/49.6%, respectively, compared with +16.6/+4.9 PCT, respectively. The company's current production capacity is 5.9 billion buttons per year, an increase of 1.7% over the previous year; the annual production of zippers is 0.44 billion meters, an increase of 3.5% over the previous year.

Gross margin increased, expense ratio decreased, inventory turnover accelerated, net operating cash flow increased gross profit margin: gross margin increased 0.6 PCT to 41.8% year-on-year in the first half of '24. By category, the gross margin of buttons/zippers was 42.1%/42.9%, up 0.3 PCT year on year; by region, domestic and international business gross margins were 41.3%/42.9%, respectively, +1.9/-2.1PCT year on year. On a quarterly basis, gross margin for the 24Q1/Q2 single quarter was +0.2/+0.5PCT to 37.9%/43.9%, respectively.

Expense rate: In the first half of '24, the cost rate decreased by 0.9 PCT to 20.1%. Among them, sales/management/R&D/finance expenses were 8.0%/9.1%/3.6%/-0.6%/-0.6%, respectively, +0.1/-0.7/-0.3/-0.1 PCT, respectively. On a quarterly basis, the cost rates for the 24Q1/Q2 single quarter period were -2.3/+0.4 PCT, respectively.

Other financial indicators: 1) Inventory increased by 28.8% to 0.78 billion yuan at the end of June 24, up 29.0% year on year; the number of inventory turnover days was 93 days, a decrease of 5 days; the number of inventory turnover days for buttons and zippers for major products was 30 days and 31 days, respectively, down 2 days year on year, and inventory balances increased 25.4% and 22.4% year on year, respectively. 2) Accounts receivable increased by 46.6% to 0.68 billion yuan at the end of June '24 compared to the beginning of '24, an increase of 33.5% year on year; the number of accounts receivable turnover days was 45 days, an increase of 1 day over year. 3) Net operating cash flow was 0.39 billion yuan in the first half of the year, an increase of 59.9% over the previous year.

The results for the first half of the year exceeded expectations. Overseas production capacity of leading accessories companies was actively deployed, and as the inventory of downstream brand customers returned to health in the first half of the year, the company's order performance improved, production capacity, and performance exceeded expectations. Both revenue and profit sides grew rapidly, and business quality also improved. Over a long period of time, the company has continuously strengthened its product capabilities, innovated products in multiple dimensions and forms, met the diversified needs of customers, and continued to advance the level of intelligent manufacturing. The company's Vietnam Industrial Park was successfully put into operation in the first half of the year, further promoting the international marketing network layout and international brand customer development work, and the international business revenue growth rate was relatively rapid. We continue to be optimistic about the steady expansion of the company's overseas production capacity, enriching the customer and category structure, vigorously promoting the global strategy, actively increasing market share and achieving steady growth in performance as a leader in accessories.

Considering that the performance of the first half of the year exceeded expectations, we raised the company's profit forecast for 24-26 (net profit up 7%/7%/7% from the previous profit forecast, respectively). Based on the latest share capital, the corresponding EPS for 24/25/26 was 0.61/0.70/0.79 yuan, respectively, and the 24/25/26 PE was 20/17/15 times, respectively, maintaining a “buy” rating.

Risk warning: Domestic and foreign demand continues to weaken, causing damage to the company's orders and gross margin; production capacity expansion falls short of expectations; rising raw material prices, rising freight rates, rising labor costs; and exchange rate fluctuations.